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Negative gearing calculator
Attention Australian property investors! Are you aware of the potential tax benefits of negative gearing?
If your investment property is operating at a loss, or if you're considering purchasing a loss-making property, Your Mortgage’s Negative Gearing Calculator can help you see how to turn those losses into potential tax savings.
Discover whether you could reduce your tax bill with our easy-to-use calculator.
Your estimated results
Your investment property is positively geared as your rental income can cover your expenses. You won’t be able to make any deductions from your taxable income and you’ll be paying $ 0.00 more in personal income tax per year.
Summary
Rental Income
$ 0.00 / year
Total Expenses
$ 0.00 / year
Pre-Tax Cash Flow
$ 0.00 / year
Tax Benefit
$ 0.00 / year
What is negative gearing?
If the rental income an investor receives from a property doesn’t cover the cost of owning it, the investment may be ‘negatively geared’.
At first glance, having a negatively geared property might not seem appealing. After all, most investors aim to maximise their rental income and assumably pay off their mortgage.
However, a negatively geared property can place a strategic investor in a strong financial position.
Investors might expect property price appreciation over the long term, and the rate of appreciation could dwarf the costs of owning the property. Additionally, a negatively geared investor could take advantage of a significant tax break.
The Australian taxation system allows negatively geared property investors to offset their other taxable income with any losses incurred from an investment property.
For example, if Greg earns $100,000 a year at his job and incurs a $10,000 loss on his investment property, he could reduce his taxable income to $90,000, potentially saving thousands in income tax.
Costs that can be deducted via negative gearing include:
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Home loan interest
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Property management fees
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Repairs
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Rates
Investors can also claim depreciation on their rental property, potentially further reducing their income tax payable.
Looking to invest? Check out some of the most competitive investment home loans available now.
Important Information and Comparison Rate Warning
Is negative gearing right for your property investment strategy?
When you own a rental property that’s rented out to tenants, the interest portion of your home loan repayments and other property costs can typically be claimed as deductions when you submit your tax return.
If those claims outweigh any rental income realised, they can be offset against taxable income from other sources.
This can work to lower your total taxable income and, therefore, the amount of tax you pay.
Some property investors find that this strategy works to help them reduce their overall tax bill, whilst enabling them to own an asset that will ideally increase in value over time.
Whether this strategy will work for you will depend on a number of factors, including:
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Your total annual income
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Your rental property’s ongoing costs
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The amount of interest you pay on the home loan
So, there’s some calculating and number-crunching to be done!
Investors who have a higher salary might be more inclined to aim for a negatively geared investment property, as they might expect their total annual income to sit in a higher tax bracket. Therefore, minimising their tax payable could save them substantially more than it would if they were being taxed at a lower rate.
Though, it’s worth noting that the tax deductions offered for those who hold negatively geared properties will likely never see that investor in the green.
The maximum rate at which income is typically taxed in Australia is 47%, including the Medicare levy. So, a negatively geared property investor may only wipe a maximum of 47 cents off their tax bill for every $1 they loose to an investment.
Moreover, many investors consider it more beneficial to have their property positively geared. A positively geared property can increase a person's cash flow, their borrowing power, and even potentially allow them to make extra repayments towards their investment home loan.
The latter could ultimately increase their equity, reduce the total amount of interest paid on the loan, cut down their loan term, and perhaps propel them towards purchasing their next property sooner.
About this calculator
Your Mortgage’s Negative Gearing Calculator can help reveal the possible tax benefits that may be available to you as a property investor if you’re negatively geared. And it takes just three simple steps.
First, provide the purchase price of your current or planned investment property, the total amount you have or plan to borrow through an investment home loan, the length of the loan, and the interest rate applicable.
Then, provide details of the investment property’s annual rental return, as well as your annual salary, and any other taxable income.
Finally, plug in details regarding the cost of up-keeping or managing the property, including strata fees, council rates, land tax, and repairs and maintenance costs.
It’s worth noting, however, that the calculator won’t factor in fluctuating interest rates, the future financial circumstances of a buyer, or the changing costs of holding property.
To find out what type of gearing is best for you, read this: Which type for gearing is best for you
Frequently Asked Questions
Depending on your circumstances, you could save yourself paying a significant amount of tax if your residential investment property is negatively geared.
However, it's important to remember that negative gearing isn't always a beneficial investment strategy. Offsetting other taxable income with losses incurred from an investment property doesn't mean you'll recoup all of those losses.
At the current top marginal tax rate including the Medicare levy, which is 47%, a negatively geared property investor can expect to save 47 cents in tax for every dollar lost on holding their property.
It’s worth seeking professional advice if you think you might benefit from negative gearing.
Negative gearing might carry tax benefits, but a negatively geared investor must cover the out-of-pocket expenses until tax time rolls around. Negatively geared investors typically hope they make a capital gain when they sell the property, as they’re making a loss while owning it. Capital gains, of course, aren’t guaranteed.
Positive gearing, on the other hand, means that the rental income brought in outweighs the costs that owning a property demands. A positively geared investor will be making a day-to-day profit on their investment and will have to pay income tax on that profit.
No. Simply put, you cannot negatively gear the property in which you live.
Though, if you rent a portion of your home out (perhaps by having a roommate or leasing it on an accomodation platform) you can claim back some of the expenses you face as the owner.
According to the ATO, you must declare any income you receive from renting out your home and you can deduct a portion of some costs, including:
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Interest on your home loan
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Electricity, gas, and water bills
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Home insurance
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Maintenance costs
How much of those costs can be claimed on your tax return will depend on how much of the property was rented out and how many days of a year it was rented out for.
Negative gearing means that any loss a property investor incurs from owning an investment property can offset their other taxable income.
So, if it costs $200 a week to maintain your property and you only earn $150 a week of rental income, you can deduct $50 a week from your taxable income and reduce your income tax bill at the end of the financial year.
If you earn an annual salary of $50,000 and lose $50 a week on your property - $2,600 per year - you could effectively reduce your taxable income to $47,400.
That might take the sing out of the loss, as you would avoid paying income tax on $2,600 of your earnings.
Ideally, when an investor later sells their property, the capital gain they realise will outweigh the losses they bore in prior years. Though, there’s no guarantee that will be the case.
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